What financial records to keep, how long to keep them

Saturday, 09 January 2010 13:34

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This is something I get asked a lot. âHow long should I keep tax returns, bank statementsâ¦etc?â So I thought I would send this information out again.
I hope you find it useful. You canât take everything with you, but the following are suggestions about how long you should keep personal finance and investment records on file:
Financial records timeline

Type of record

Length of time to keep â and why

Taxes

Seven years

Returns

The IRS has three years from your filing date to audit your
return if it suspects good faith errors. The three-year deadline also
applies if you discover a mistake in your return and decide to file an
amended return to claim a refund.

The IRS has six years to challenge your return if it thinks
you underreported your gross income by 25 percent or more.

Records for tax deductions taken

There is no time limit if you failed to file your return
or filed a fraudulent return.

IRA contributions

Permanently
If you made a nondeductible contribution to an IRA, keep the records
indefinitely to prove that you already paid tax on this money when the
time comes to withdraw.

Retirement/savings plan statements

From one year to permanently

Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then shred the quarterlies.

Keep the annual summaries until you retire or close the account.

Bank records

From one year to permanently

Go through your checks each year and keep those related to your taxes, business expenses, home improvements and mortgage payments.

Shred those that have no long-term importance.

Brokerage statements

Until you sell the securities
You need the purchase/sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.

Bills

From one year to permanently

Go through your bills once a year.

In most cases, when the canceled check from a paid bill has been returned, you can shred the bill.

However, bills for big purchases â such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. â should be kept in an insurance file for proof of their value in the event of loss or damage.

Credit card receipts and statements

From 45 days to seven years

Keep your original receipts until you get your monthly statement; shred the receipts if the two match up.

Keep the statements for seven years if tax-related expenses are documented.

Paycheck stubs

One year

When you receive your annual W-2 form from your employer, make sure the information on your stubs matches.

If it does, shred the stubs.

If it doesnât, demand a corrected form, known as a W-2c.

House/condominium records

From six years to permanently

Keep all records documenting the purchase price and the cost of all permanent improvements â such as remodeling, additions and installations.

Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agentâs commission, for six years after you sell your home.

Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. This adds up to a greater profit (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax.

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